Do You Own Any of the Altcoins the SEC Says Are Securities? | by Stephen Dalton

CRYPTOCURRENCY | ALTCOINS | SEC

The U.S. Securities and Exchange Commission (SEC) named some 70 altcoins as securities. What action should we take immediately

The Securities & Exchange Commission, SEC by Sergei Tokmakov — Pixabay.

To answer this, we must dive into the world of crypto-regulation and unravel some complex legalities. Let’s start with understanding why it matters.

I own a few of the altcoins that the SEC has labeled as securities, such as XRP, MANA, SAND, ALGO, BTT, DASH, and others, as I’m sure many HODLers do. I do not foresee selling any at this time.

IMO, these altcoins could recover a lot of their lost value over time, and particularly during th enext bull run. If selling creates a loss, you might want to wait.

The SEC announcement and the decision of a couple of exchanges to delist these altcoins have created fear, uncertainty, and doubt (FUD) across the crypto universe. But is it warranted?

Why It Matters & What to Do About It

When an altcoin is classified as a security by the SEC, it means that the altcoin must comply with specific regulations and requirements, which can impact its liquidity and market accessibility.

As a crypto investor, it’s important for me to keep track of such developments to stay compliant and understand how these might affect my investment’s potential.

When you look at what happened after the SEC opened its lawsuit against Ripple Labs’ XRP altcoin, several exchanges delisted XRP. That means you couldn’t buy or sell it on that exchange.

You could still move it off the exchange to sell elsewhere. IMO, it is not wise to leave your crypto on an exchange anyway. There is too much chance of a hack or bankruptcy of the exchange.

Look at FTX. Many American investors thought it was too big to fail. Oops.

However, if you remember November 2021, e-Toro announced it would delist Cardano (ADA) and Tron (TRX) by 2022 due to “regulatory concerns.”

I sold my ADA and TRX holdings immediately. It was the first such “scare” for me. Since then, several FUD incidents have occurred, including the SEC lawsuit against Ripple’s XRP. I still hold XRP in my cold wallet. Maybe I’ve gotten used to the SEC’s FUD and “scare tactics” and am not so apt to panic.

Knowledge is the key. Knowing and accepting the risks can help you make a more informed decision.

What Is the Howey Test?

To determine whether an asset qualifies as a security, the SEC often relies on the Howey Test, derived from a 1946 U.S. Supreme Court case, SEC v. W.J. Howey Co.

It involves assessing whether there’s an investment of money in a common enterprise, with an expectation of profit predominantly from the efforts of others.

“Under the Howey Test, a transaction qualifies as a security if it involves the following four elements:

1. An investment of money

2. In a common enterprise

3. A reasonable expectation of profit

4. Derived from the efforts of others

To be considered a security, a transaction must meet all four prongs of the Howey Test.” — Embroker.

Given their Initial Coin Offering (ICO) structures and reliance on specific teams for success, many altcoins can fall under this definition.

However, in 2021, one of the altcoins determined by the SEC to be a securities, received permission from the SEC to hold an ICO. Now, the SEC is saying they have been selling securities illegally since 2019. WTF?